January 17th, 2013

If there were still magazine stands, I’d be all over them today. Three pieces of mine have (coincidentally) come out on in the last day or so, in fairly disparate publications

* In Aeon (a new British “digital magazine of ideas and culture, publishing an original essay every weekday”), I have a followup to my first essay there, which argued the case for a Keynesian utopia, with a drastic reduction in market working hours. In my follow-up, I look at the environmental sustainability of the idea. The tagline for the essay “For the first time in history we could end poverty while protecting the global environment. But do we have the will? ”

* Continuing on the utopian theme, Jacobin magazine has published The Light on the Hill, a reply to Seth Ackerman’s piece on market socialism

* And, at The National Interest, a piece with the self-explanatory title, Will Banks Finally Be Brought to Heel?

While I’m plugging my own work, I thought some readers might be interested in this paper on financial liberalisation and asset bubbles, written in the leadup to the global financial crisis. There’s not much I would change now, and it’s still a pretty good summary of how I think about the financial bubble that created the crisis. The linked working paper version is from 2004, and it eventually appeared in the Journal of Economic Issues, the main journal of the institutionalists who carry on the tradition started by Veblen and Commons in early C20. Not surprisingly, given this obscure outlet, it hasn’t had a lot of attention.

  1. hc
    January 17th, 2013 at 07:39 | #1

    I enjoyed the current Aeon piece but would have given more emphasis on its last para. We need to switch to less resource intensive growth styles if global development is to be sustained with global poverty substantially eliminated. More leisure, more education and less material production in developed countries are a key component of this. The developing world needs to overcome poverty but not to entertain the dominant macroeconomic fiction that it can thereupon grow at 2% annually in the way the West currently believes it will. The West needs to adopt a more mature growth ethic of less environmental impact and to promote the hope that the developing world will come to adopt this also.

    There is evidence of reduced innovativeness in the West by Gordon and others and, eventually developing country free-riding on Western ideas will cease. Reduced fertility should be welcomed and the population explosion in Sub-Saharan Africa curtailed through intensive contraception programs. The world can do fine with a much lower global population that draws per capita far less intensively on atmospheric, land and atmospheric resources than it now does.

    I am unsure this is “utopian” or it is the only way out of the possible scenario where global poverty is eliminated but the global environment is irretrievably trashed and where the human race downsizes in a catastrophic unsought way.

  2. Doug
    January 17th, 2013 at 08:13 | #2

    The road to reduced population growth is education for women – contraception would be an element but not the main focus. Education for women drives improved health and economic development.

  3. Ikonoclast
    January 17th, 2013 at 08:25 | #3

    I am a little confused. If 1 US gallon = 0.83267 Imperial Gallons (according to the converter I used) then how can the smaller US gallon push a car 20 miles and the larger Imperial (UK) gallon only push a car 16 miles?

    Overall, it is in many ways a qualitative essay, not a seriously quantitative essay. The latter type would not get a run in a magazine. Also, it attempts to offer some hope. The blunt, negative message of the type I offer just closes peoples’ minds. I’ve had people say to me after my verbal analysis, “I don’t believe it.” That’s all. No analysis, no quantification, no rebuttal. Just, “I don’t believe it.” This is usually accompanied by a sort of shutter coming down over the face, eyes shifting elsewhere and a rapid shift into a more enjoyable, light conversation with others. Simply, they can’t handle the truth.

    People don’t believe it because they don’t want to believe it. Clearly what people want to believe and thus do believe is very heavily biased towards hopeful and flattering messages. If you give people hope and flatter them (positive messages) as politicians always do, then they will believe you and go along with you. Anyone committed to telling the objective truth, particularly about unpalatable matters or deeply cherished beliefs (sacred cows), has no hope of being believed and the message no hope of being received.

    Where does that leave us when we need a comprehensive, quantitative and objective analysis of a matter likely to be very disconcerting? Well, it does not leave us in a good place. In summary, most people don’t like complex arguments and unpleasant conclusions.

    I haven’t actually repeated any of my objective arguments here. I have done them to death on JQ’s blog before and the incredulity shutters came down long ago. We must await the empirical outcome.

  4. Uncle Milton
    January 17th, 2013 at 08:26 | #4

    JQ, have you ever considered that the number of papers that you write is completely inconsistent with the notion of working only 15 hours per week?

  5. January 17th, 2013 at 08:35 | #5

    John, I think Seth Ackerman piece fundamentally misunderstood Marx (even though eh quotes him) and posits the problems of capitalism as ones of distribution rather than being found int eh essentially exploitative nature of work and production. I welcome progressive reforms because they make our lives better here and now. However I think the age of austerity is driven in large part not by financialisation, which I think may really be more about a closer relationship between finance and productive capita,l but by falling profit rates and attempts to restore those rate by lengthening the working day, increasing productivity, cutting wages and social services and so on. Creative destruction does not appear an option for capital, or at least for their governments, although eventually the pressures building up may blow that apart and companies too big to fail may go the wall, irrespective of what governemnts do. It seems to me given the systemic drivers forcing capital to attack workers and their benefits and the consequent dismantling of the welfare state, that progressive reforms today won’t be won by argument alone, but need to be accompanied by mass action, strikes, demonstrations and the like. Otherwise they remain worthwhile ideas floating on sea of remote possibility.

  6. hc
    January 17th, 2013 at 08:45 | #6

    Uncle Milton, Is it purely work in John’s case? Even if it is it is certainly not an activity that draws intensively on environmental resources. From the viewpoint of environmental sustainability it must get a tick.

  7. BilB
    January 17th, 2013 at 08:51 | #7

    Well, there are three feathers in your cap, JQ, with three good articles. You are right to be well pleased.

    Commenting on the “world Enough” piece, I think that the consumption transition process has begun, and that transition began with cell phones. In a documentary on Mexico city some years ago a comment was made that given a reasonable education, freedom of speech and twenty years democracy is automatic. We have seen this being bourne out as true with the Arab Spring, and the backlash with Talibany repression.

    The new way to solve problems is with a cell phone and a small solar panel. People can solve their own problems given a voice, access to basic resources, and a little scope to manouvre. One of the world’s biggest problems is with inappropriate standards. We see it all over the world in shanty towns where people have gathered the resources available to them and built sufficient homespace to meet their needs with some comfort and dignity. And now in Rio De Jeneiro some of these shanties are becoming legitimised and sought after. And these shanties are very resource efficient with an extremely high degree of recycling and a very low level of CO2 emissions per person. But cultured interests routinely label such self sufficiency as substandard and a threat to wealthy resource holders with governments being manipulated to be the conduit of that resource protection largely through land control. Our own local example with the NT “Intervention” where a social problem was used as an excuse for a land grab and a further retardation of rights for a people seen by some as being substandard.

    Building on the immense success fo the Cell Phone came the Smart Phone, and almost instantly the App, and hot on the heels of those came the, finally successful, tablet. The “App” will be written into history as one of the pivotal technologies of the 21st century as this feature of the smart phones enable the use of thse very powerful submicor computers to aid us in every aspect of our lives. Not only that every person on the globe has access to the smart phone platform to share their creativity and problem solving with billions of other people around the globe.

    What do I have on my phone that I use nearly daily apart from the phone itself
    emails, sms’s, micro office, google global data search, full scientific calculator, spectacular camera with document scanning and reading, torch light, street maps of nearly the entire globe and navigation, compass, weather, diaries, entertainment in radio video and music form, public transport access information, scientific and engineering reference data,…….and tools such as inclinometer/level and electronic tape measure. Not yet installed is an EFIS (electronic flight instrumentaion system for flying and a bicycle instrument package. Currently under development are medical diagnostic tools and software.

    This represents functional compression to a massive degree. And it all happened because governments and vested interests could had no method to get in the way to prevent this explosion of free creative expression.

    I take issue with Donny Duke’s reply to the Aeon publication where he declares JQ’s article as a “lame utopian dream”. Most of what JQ aspires to can be achieved simply with governemnts ….not…..doing things. Not obstructing people from seeking their own solutions, and not destroying those solutions in order to steal even these meagre resources. There are some limits of course in ultra dense demographies such as India and Bangladesh for instance, but in most parts of the world there are sufficient local renewable resources for subsistence. Further, with rejuvenation of a long forgotten initiative to fashion consumables packaging to be more reuseable (drink and water bottles that when filled with sand and mud make building bricks, fuel and oil containers that can be flattened or reformed as roofing material or walling material) in areas where self sufficiency is required.

    There are simple things, effortless things that can be done by governments to solve pressing global problems such as starvation and homelessness.

    In the “western” sphere the smart phone, laptop and the tablet pc have become the focus for young people’s interconnectivity, creative communication, and personal entertainment. And utilise these media simply requires a comfortable warm seat, a small electrical feed a cup of coffee and plenty of time. For the young the need for masses of consumeable assets is declining, and low consumption technologies are ramping up at a huge pace. This year will see VW’s 100 klm’s per litre (235 miles per gallon) XL1 car go into production. This one technological achievement alone has the potential to slash resource consumption in the west to a third in personal vehicular materials, a tenth in fossil fuel consumption, a half in road maintanence, while reducing teenage pregnancies by 15% (the set back passenger seating makes this vehicle an ideal dating vehicle from the parental perspective). Couple this with solar technologies, the current wave of better food awareness, the NBN, and more efficient accommodation solutions, and the CO2 emmissions targets are entirely realistic as the current young generation matures.

    My research into affordable accommodation tells me that even in Australia today high quality self owned accommodation can be achieved for 60$ per week per person. and projecting that further, the 15 hours per week utopia is actually achieveable for single people even if not practical for a number of reasons (think fiscal collapse for starters). And lets face it, in the surfing generation the utopia has been practiced in ernest for several generations.

    I endorse the articles as being significant, challenging and provocative.

  8. Uncle Milton
    January 17th, 2013 at 08:56 | #8

    hc, the work 15 hours argument, if I read it correctly, is about more leisure and less hard yakka, not less strain on the environment. If work is something to be endured only because it pays the mortgage and puts food on the table, then the less of it the better, provided you can still pay the mortgage and put food on the table.

    Of course your first point is right on the money. People like John (and you, I suspect) derive pleasure from their work. But everyone gets sick of it eventually, no matter how stimulating and enjoyable their work has been.

  9. rog
    January 17th, 2013 at 09:17 | #9

    I think the distinction is paid work and the requirement to work long hours to pay bills to various organisations.

  10. John Quiggin
    January 17th, 2013 at 09:19 | #10

    @Uncle Milton

    It’s both. In my case, the fact that I’m writing blog posts about issues closely related to my paid work suggests that I enjoy this stuff a lot. Of course, I sometimes take on commitments and have to deliver on them, even when I’m sick of it, but mostly I’m having fun.

    As a very simplified summary, the average of 15 hours market work is meant to refer to work you wouldn’t do, unless you were paid for it.

  11. Uncle Milton
    January 17th, 2013 at 10:02 | #11

    John, your statement in Aeon

    “The larger point is that no plan can encompass all the possibilities for innovation that might arise during its operation, let alone assess in advance which will succeed and which will fail”

    has got a strong whiff of what Mises and Hayek said in their socialist calculation debates with Lange and Lerner in the 1930s.

  12. Bring back Birdy at Catallaxy
    January 17th, 2013 at 11:10 | #12

    Uncle Milton, you also find Alec Nove doing due homage to Mises on the socialist calculation debates in The Economics of Feasible Socialism, which had a big influence on my thinking when I came across it in the 1980s.

  13. John Quiggin
    January 17th, 2013 at 11:25 | #13

    Ikonoclast :
    I am a little confused. If 1 US gallon = 0.83267 Imperial Gallons (according to the converter I used) then how can the smaller US gallon push a car 20 miles and the larger Imperial (UK) gallon only push a car 16 miles?

    I didn’t do this conversion and I think it was added after I saw the final proofs. I’ll check on it.

  14. John Quiggin
    January 17th, 2013 at 11:32 | #14

    @Uncle Milton Yes, but as I’ve pointed out various times, the critique of central planning should not result in uncritical worship of the price mechanism. Market failures are ubiquitous and can’t all be anticipated in advance (through contracts, for example), for much the same reasons as with the failure of central planning.

  15. Uncle Milton
    January 17th, 2013 at 11:34 | #15

    @Bring back Birdy at Catallaxy

    Homer, I am sure you are right. A lot of this stuff seems to be Nove revisited.

  16. January 17th, 2013 at 11:49 | #16

    It seems to me that the specific question fo central planning under Stalinism was that it wasn’t planning because it wasn’t democratic. Without democracy there can be no planning and no shift from production for the purposes of making a profit to production to satisfy human need.

  17. Katz
    January 17th, 2013 at 11:58 | #17


    Will 2013 be the year when the global banks that have done so much damage to the world economy are finally brought to heel? It finally seems possible, though still unlikely.

    Not much prospect of popping the bubbly here.

    On the topic of LIBOR, if I am not mistaken LIBOR is a number arrived at by a number of banks achieving consensus on lending rates between banks. As such, it is transparently a species of liars’ poker played by consenting adults.

    Unbidden by these banks, the outcome of this game of feint and subterfuge is published in the form of a series of numbers, which are then used by other banks to set interest rates for their various financial products.

    It strikes me that the banks that set LIBOR bear no responsibility for what third parties choose to do with their numbers.

  18. Ikonoclast
    January 17th, 2013 at 12:05 | #18

    Just for some light relief. My neighbour is Mr. Conehead. I spoke to him the other day. I am sure you are familiar with his irascible, stacatto delivery.

    Me – How can we humans avoid problems like global warming and resource depletion?

    Mr Conehead – You can’t.

    Me – Why not?

    Mr Conehead – It’s the physics of it. I have 16 washing machines and 7 flat screens to fix before lunch. Don’t bother me.

    Me – Why aren’t you worried?

    Mr Conehead – I can leave in my spaceship.

    Me – What about us?

    Mr Conehead – You will be leaving life on this planet too. But not on a spaceship.

  19. Bring back Birdy at Catallaxy
    January 17th, 2013 at 12:53 | #19

    I think the important thing is not to frame the debate in terms of a crude ideological opposition between markets and planning, but to ask what is the optimum mix of these and other mechanisms for making production and allocation decisions in a sustainable economy.

  20. Ikonoclast
    January 17th, 2013 at 12:53 | #20

    I have a couple of questions related to the financial liberalisation and asset bubbles paper.

    1. In connection to this statement… “In Japan in the late 1980s, CPI inflation remained at close to zero whilst equity prices almost tripled and commercial property in Tokyo more than tripled.”

    Does this not suggest that CPI inflation is being measured incorrectly? If prices of asset goods (like houses and flats) have tripled for consumers then this is a large CPI rise in itself, is it not?

    2. Why do ostensible political believers in the efficient market hypothesis (like the Liberals and now Labor too in Oz) consider it necessary to subsidise housing starts (FHOG etc.), subsidise investment (negative gearing) and subsidise fossil fuel consumption (fuel tax credits, reduced excise for aviation fuels and accelerated depreciation for fossil fuel assets to name the main ones)?

    Methinks I smell a rat in the state of Neoliberalism.

  21. Bring back Birdy at Catallaxy
    January 17th, 2013 at 13:01 | #21

    And further to John Q’s comment at @14, the Achilles heel of both planning and markets on their own is that the human participants have only a finite and fragmented knowledge of all the information relevant to a particular economic decision and a finite and fragmented capacity for communicating and processing that knowledge. If everyone in an economy was telepathically united as part of a communal mind (like, for example, the Edenist habitats in Peter Hamilton’s Night’s Dawn Trilogy) we would be able to make both centrally planned communism and laissez-faire capitalism work perfectly.

  22. Bring back Birdy at Catallaxy
    January 17th, 2013 at 13:05 | #22

    Unce Milton @15, I’m not the evangelical Protestant with a weakness for corny puns.

  23. BilB
    January 17th, 2013 at 13:38 | #23

    But then on the other hand, BbBaC, there is a time constraint if the Climate Change threat is to be treated seriously. Sometimes you just have to go with your best solutions at the time and adapt on the fly. Business does this routinely and it is totally hypocritical to criticise government for doing the same in the public interest.

  24. Bring back Birdy at Catallaxy
    January 17th, 2013 at 13:52 | #24

    Fair point, BilB.

  25. kevin1
    January 17th, 2013 at 14:34 | #25

    Unlike Ikonoklast #3, I thought the Prospects… article had sufficient detail for a quantitative model by updating Keynes and evidencing why the scarcity premise is nowadays redundant or at least well on the way out. Whether it persuades dogmatic non-believers may not be a fair test.

    This is a scientific approach which revives the relevance of utopian goals – a rare bird when we still have “two cultures” and most of the utopians live on the other side. In re-arranging and applying existing knowledge it designs and gives great traction to the project of social transformation. “Getting off the treadmill” has a great ring to it. By not getting too bogged down in data, these articles might bridge the cultural divide IF it gets read in Australia (I hope Aeon do a good job promoting the site.)

    Because work is so central to people’s identity, and their lives are organised around its demands, repositing it as “meaningful activity” undertaken under conditions of personal discretion is such a radical rupture with the present that the consequences are literally mind-blowing. Ending the involuntary regimen of the workplace, its forced social relations and behaviour can allow self-development which could only be dreamed about. The end of work means the end of “time is money” which could have implications for the pace of productivity and whether man is willing to keep up with the machine.

    If personal liberation is at hand, who knows what people will do when free choice is available. For this reason, I thought the prediction in World Enough article (strange title) of less travel due to lower work and consumption as questionable. Physically socialising with chosen others will be more important if people are not in workplaces as much, and we know that travel is bigger than ever nowadays as a leisure activity, and this is consistent with the consumption balance changing from goods to services. A tip: public libraries will develop into community centres of a scale to rival shopping malls.

    However, the functional notion of shopping as a drudge and avoided where possible doesn’t gel with the enjoyment or at least urge for physical involvement in the selection process for all sorts of personal and home goods. The overhyped internet shopping phenomenon is still only1% of sales or thereabouts. Sure the supermarket is a dreary task but as JQ says “entertainment is little more than vicarious consumption” (I think you need to swap the nouns around.)

  26. January 17th, 2013 at 14:59 | #26

    corny puns!!!!

    you need to sort the wheat from the chaff

  27. B.
    January 17th, 2013 at 16:48 | #27

    Please ignore–just posting so that I get new posts by email.

  28. Chris Warren
    January 17th, 2013 at 16:57 | #28

    Seth Ackerman finally reached the real issue. Towards the end of his piece, he said:

    What is needed is a structure that allows autonomous firms to produce and trade goods for the market, aiming to generate a surplus of output over input — while keeping those firms public and preventing their surplus from being appropriated by a narrow class of capitalists.

    It is possible to nit-pick about Ackerman’s use of the word “surplus”, but in essence this is the take home message – and a good one at that.

    John Q’s reply started-off on the wrong foot. Where in Ackerman is there the proposition that:

    the Left can no longer rely on the idea that the victory of the working class is inevitable, and that we should focus on organizing to hasten its arrival, before worrying about what kind of society will replace the existing order.


    Now Ackerman is pursuing an alternative economy under a rough banner of “market socialism” and this is useful if it serves society by erecting signals to move resources. However Ackerman’s usage of the term “surplus” leads to a misunderstanding of capitalist profits, and I fear, therefore to a risk of embedding similar contradictions within his public investment schema.

    For Ackerman there is “capitalist profit” and then there is….

    … on the other hand, profits are understood simply as a benign coordinating signal, broadcasting information to firms and entrepreneurs about how to satisfy society’s needs most efficiently.

    However, n.b., profits are not benign if they are calculated using opportunity costs. And this is what mainstream economic theory proclaims [See: Hal Varian, Intermediate Economics: A Modern Approach 6th ed. p332].

    Also the correct signal is only found in a real, true, bona-fide free market which has competed away all short-term premiums and which ignores windfall profits. But under market socialism, co-operative managers or public funds will tend to adopt many of the commercial tactics we see today under capitalism to maximize their “surplus”. They will sell as long as they get a “surplus” and when they feel this is too low will switch to something else, or sell on a promise to pay later, or will try to sell for export. They may even seek to borrow from public-funds to increase co-operative productivity. You cannot get any “benign coordinating signals” out of this – or at least not ones that, supposedly, broadcast information to firms and entrepreneurs about how to satisfy society’s needs most efficiently.

    However if “surplus” is viewed strictly as a true surplus and not including surplus-value, this issue disappears, as does capitalist profit. Then you can get appropriate signals through the chaotic and opportunistic exchange of commodities.

    If economic calculation is pursued beneath so-called opportunity costs, then all you have is labour-value and associated wages – which is all you need, if you are a worker or require a pension.

    This then becomes pretty close to a foundation for:

    … a structure that allows autonomous firms to produce and trade goods for the market, aiming to generate a surplus of output over input — while keeping those firms public and preventing their surplus from being appropriated by a narrow class of capitalists.

    I don’t mind the banner “market socialism” but you have to be very careful with what this consists of. It certainly does not consist of (I presume Ackerman’s) “rational market socialism” where:

    publicly-owned firms would have to be made autonomous — and this would require a socialized capital market.

    Any capital market is the problem. Strictly autonomous public firms are a threat.

  29. David C
    January 17th, 2013 at 18:39 | #29

    Does this not suggest that CPI inflation is being measured incorrectly? If prices of asset goods (like houses and flats) have tripled for consumers then this is a large CPI rise in itself, is it not?

    I’ve seen this question asked several times and the standard answer you get back is that assets are not items of consumption, they are investments, or some such thing… and we must keep our measure of CPI pure.

  30. Jordan
    January 17th, 2013 at 20:09 | #30

    Does this not suggest that CPI inflation is being measured incorrectly? If prices of asset goods (like houses and flats) have tripled for consumers then this is a large CPI rise in itself, is it not?

    If you take assumption that economic schools are largely self-referential then it became clear how is possible that CPI is not including all asset inflation for a final number. To get the preferable results it uses sellective and self-referential formulas.
    Thats how you get efficient market hipothesis, velocity of money, fiscal multiplier, CPI and more. On itself they are useles numbers, but what matters is change in the numbers from period to a period in a dynamic system provided that way to accuire numbers did not change.

  31. Jordan
    January 17th, 2013 at 20:25 | #31

    For exsample the difference in CPI and core CPI that does not include oil and food prices. When you take a look at the charts it is visible that core CPI follows the average of very eratic CPI line.
    Cosidering the way the housing inflation is calculated as not house prices but as rental prices and rental value of house prices then every bubble in house prices is visible and after the bubble burst it will come down on rental value line.

    Another thing is effect of taxes on CPI, in USA prices in stores are listed without taxes while in EU tax is included in listed price. How the national registry in messuring CPI take those prices is important to get clearer picture of the market signals. Due to enormous variety in US taxes from region to region you can get the right number only by excluding tax portion from price change, while in EU where taxes are prety uniform they can get better feel for price change due to effect on consumer power, more macroeconomic relation, while in US more microeconomic value.
    This self-referential way of calculating CPI shows more socialized/ central planing/ macroeconomic value vs. decentralized / microeconomic value.

  32. Jordan
    January 17th, 2013 at 20:41 | #32


    I have three objections to this. The first is that, while conversion of equity capital to deposits in (government-owned) banks sounds like a modest step if you say it quickly enough, it’s utterly outside the realm of political feasibility.

    This has allready been done partially in the USA. Trough financialization of industries and defaults and foreclosures, banks own a large part of the US economy. Now after bailouts the US government owns a lot of banks and some shares of them and control their survival. It is only a matter of a decisive administration to take over control of them, now they have shareholders rights to support that (maybe a bit more of it is needed for full legal base) instead that banks control administration as it is at the present.
    Once banks and government administration is so intermingled and interdependent it is a matter of will that decides who controls whom.

  33. David C
    January 17th, 2013 at 21:05 | #33

    The problems seem particularly severe with respect to the use of higher interest rates, which are always politically unpopular, as an instrument to constrain increases in asset prices, which are generally popular.

    This is the fundamental problem with democracy. Those in power are compelled to do what is popular and not what is for the greater good*. Thus we keep ending up in a mess.

    *I’m not saying that everything that is popular is not for the greater good, or that everything that is not popular is for the greater good. The previous government in Queensland found the sweet spot for things that were unpopular and were not for the greater good.

  34. kevin1
    January 18th, 2013 at 00:30 | #34

    @Bring back Birdy at Catallaxy
    In The Light on the Hill, I saw JQ’s ref to “I, Pencil” which I hadn’t read before. Fairly predictable fare, but had to laugh when Read talks about the reasons why people, having experienced govt monopoly of the US mail, can’t envisage that the private sector can do it just as well: because ‘in the absence of faith in free people—in the unawareness that millions of tiny know-hows would naturally and miraculously form and cooperate to satisfy this necessity—the individual cannot help but reach the erroneous conclusion that mail can be delivered only by governmental “masterminding”…Freedom is impossible without this faith.’ So, a combination of faith-based economics and… what? the birds and the bees?

    Meanwhile Aust Post seems as strong and popular as ever, despite the waves of creative destruction in its industry, without any political interest (as far as I can see) in its privatisation. O ye of little faith, can’t you see we must destroy something which is highly successful in order to get something which is even better?

  35. BilB
    January 18th, 2013 at 02:19 | #35

    OK, JQ, thanks for inducing me to read Seth Ackerman’s piece. It really is excellent. Now I haven’t quite finished, I’m down to his “solution”. Unfortunately he has fully proven that socialism is a concept that works locally but never nationally. Or it works in concert with capitalism for those aspects of community that are socially focussed such as health care, education, roading, policing and defence.

    It also became clear to me the essential problem with economics. Economists of even today are as Galileo observing the stars and planets through his telescope. One can learn a huge amount about a distant place with determined magnified observation, but in the end there is no substitute for actually going there. What did we really know of the surface of Mars before we actually went there with our robots and probes? Economists, go out and get a job, a manufacturing job and get the feel of actual modern production and the decision path that keeps industry moving.

    It all came together in my mind with Arrow and Debreau’s general equalibrium. The arrival timing of this theory is as interesting as its unseating as uncertainty set in. In the 50’s manufacturing was very much lineally linked to human involvement. There was automation but with that class of electrical and hydraulic automation output was still very much dependent on human presence to maintain output. In the 60’s came plastics and machines that could run for days at a time unattended. Output began to decouple from human attendence (people were still required but it was supervisory and periodic). Metal die casting had been in use for many decades but it had not had anything of the impact that was to occur with plastics. Plastics gave a huge improvement in detail, functional density and colour in components and at very low prices with high volume. The pricing of components and complete products began to become discretionary. And it is this expanding variability in product pricing that iintroduced uncertainty into the general equilibrium, I believe. In the later seventies came the first serviceable computer driven machinery and metal machining began to get the advantages of complex machine processes operating fully unattended for long periods of time. Furthermore the computer numerically controlled machinery accelerated the production of plastics tooling which further reduced the cost of plastics components. Plastics component pricing is very competitive but the finished product cost of production could now be as little as 5%, and with this huge ratio between production cost and retail price economics principles became more academic than real. And even with these huge profits the product to the consumer were still considered to be cheap.

    Next came consumer electronics and soon after came the PC. Every step along this path made the collapse of capitalism more remote. My view of an ideal economy is one where absolutely every one is a capitalist with a machine of some sort at the end of their garage and there income inpart or full comes from the automatic operation of that machinery. Average business size? 2 people. So far from immiserating the workers, every one is engaged . And with today’s laptop computers this small business economy is even easier to participate in. For just a few thousand dollars a person might have a laptop and some graphics software and be producing fabric designs while sitting on the back porch and feeding the parrots.

    There is one other little point that I want to make regarding capital and business failure. When a business fails the cost of that failure is bourne by that business’ suppliers. This to me is a form of business socialism in which a businesses suppliers serve as a support group acting to as far as possible keep their customers performing well. It is not all as cut throat as the Capitalist persona suggests.

  36. Chris Warren
    January 18th, 2013 at 05:22 | #36


    Leaving aside whether Ackerman actually presents socialism, why does anything Seth presents:

    … works locally but never nationally.

    Yes, you can learn a lot about capitalism by actually going there – but this means you have to visit working conditions in the Third World and other developing economies.

    All your “consumer electronics” that for a few thousand dollars gives you the right to sit on the back porch feeding parrots, are made by thousands of workers many of whom are committing suicide due to oppressive working conditions.

    This is so naive, I don’t know where to start:

    My view of an ideal economy is one where absolutely every one is a capitalist with a machine of some sort at the end of their garage and there income in part or full comes from the automatic operation of that machinery.

    If everyone has equal right to machinery – you have socialism. You cannot have capitalism unless there is a supply of labour who own no machinery.

  37. BilB
    January 18th, 2013 at 06:45 | #37

    Chris Warren,

    Even in my maximum self employment small business economy there is every other business scale. Not everyone wants or knows how to utilise machinery.

    Ackerman did an excellent job of outlining the tragic flaws in large scale socialism, laying bare failure to enable great enterprise. And equally you have failed to demonstrate where Ackerman is wrong in his analysis.

    The misery that you believe to be the failure of capitalism does indeed exist

    But it is illegal and should be dealt with through the courts.

    On the other hand applied socialism has all of the same failings where individuals find a way to distort and manipulate the system to their advantage. When this happens the consequences under socialism are far worse, as the victims have absolutely no redress, means or method to escape their tyranny, North Korea being the prime example. In other words whatever failings capitalism has, socialisms are far worse.

    From my observation of your arguments, you are totally confused as to what Capital actually is. So I ask you, what is JK Rowling’s desktop computer, which has enabled her to become a billionaire, in your “idealised” world? And what should have been JK’s creativity reward in your communal cooperative world?

  38. Uncle Milton
    January 18th, 2013 at 08:51 | #38


    Australia Post is in deep trouble because of the decline in letter volumes, brought about precisely because of the waves of creative destruction in its industry. No one wants to privatise it because that would mean explicitly dealing with issues that are best not talked about, like the community expectation for 5 day a week letter delivery and subsidies for the bush.

  39. Ikonoclast
    January 18th, 2013 at 09:44 | #39

    Unless I missed it, nobody has commented yet on the article, Will the Banks Finally be brought to heel. In summary, Prof. J.Q. still thinks it is “unlikely”.

    Prof. J.Q. also says, “On the one hand, the corruption of the financial system is so comprehensive that no individual can be held responsible. On the other hand, the financial institutions are so large and intertwined that the failure of any one could bring the entire system crashing down, as almost happened with the Lehman failure in 2008.” He then goes on to detail how no banks – and until recently no individuals – faced serious prosecution but rather “wrist-slapping” fines. Finally, he notes that no significant economic recovery has occurred, we are still in the doldrums and high unemployment and low wage share of the economy are still the norm

    This reeks of systemic failure in all senses; economically, governmentally and morally. Add to this failure to address climate change, resource depletion and attempted endless growth in a finite system and you have systemic failure of the most gargantuan and catastrophic propostions. Until people can admit that the capitalist system itself is the problem and the most stupendous disaster and failure then we will make no progress at all. And don’t bother raking in soviet state capitalism as an example. It’s just another example of the failure of capitalism.

  40. BilB
    January 18th, 2013 at 10:03 | #40

    Chris W

    My comment got tangled in the mod filter.

    So trying again, even in my maximum self employment small business economy there is every other business scale. Not everyone wants or knows how to utilise manufacturing machinery.

    Ackerman did an excellent job of outlining the tragic flaws in large scale socialism, laying bare its failure to enable great enterprise. And equally you have not demonstrated where Ackerman is wrong in his analysis.

    The misery that you believe to be the downfall of capitalism does indeed exist

    google here “Radio Australia nike-workers-claim-military-paid-to-intimidate-them”

    ….but it is illegal and should be dealt with through the courts.

    On the other hand applied socialism has all of the same failings where individuals find a way to distort and manipulate the system to their advantage. When this happens the consequences under socialism are far worse, as the victims have absolutely no redress, means or method to escape their tyranny, North Korea being the prime example. In other words whatever failings capitalism has, socialisms are far worse.

    From my observation of your arguments, you are totally confused as to what Capital actually is. So I ask you, what is JK Rowling’s desktop computer, the literary production machine that has enabled her to become a billionaire, in your “idealised” world? And what should have been JK’s creativity reward in your communal cooperative world?

  41. kevin1
    January 18th, 2013 at 10:23 | #41

    @Uncle Milton

    Why do you say deep trouble? My point was that, contrary to the public sector stereotype, they have a strategy (and what looks like a capability) to offset the regulatory burden and snail mail decline. It appears to be working and generating good profits.

    They have diversified their risk through profitable sales at their retail shops and parcels and express delivery, are innovating with “digital mailbox” products and 24hour parcel collection lockers, brought in senior talent from Microsoft and Optus, and paid a dividend to govt of $214m last year, up 23%. Net profit is up 17% on previous year, to $281m.

    Have they reduced the quality of their service to do this? Apparently not: they’ve added 200,000 red postboxes last year, and have a $2b investment program over the next 4 years. As far as I know the subsidies you mention are internally funded. What’s not to like?

    To canvass reduction of service in this context is, well I’ll be polite and bite my tongue.

  42. kevin1
    January 18th, 2013 at 10:54 | #42

    @Uncle Milton
    BTW, it’s a network, so the subsidy to the bush is also to people who post to the bush, and most people live in big cities.

  43. rog
    January 18th, 2013 at 11:04 | #43

    @Uncle Milton According to the PR AustPost lost money on letters but picked up gains delivering parcels from online purchasers.

  44. rog
    January 18th, 2013 at 11:28 | #44

    Uncle Milt

    According to the PR AustPost lost money on letters but picked up gains delivering parcels from online purchasers.

  45. David Irving (no relation)
    January 18th, 2013 at 11:30 | #45

    rog, I think they make a heap from flogging the Andre Rieu CDs as well …

  46. kevin1
    January 18th, 2013 at 12:28 | #46

    Yes but there’s more to this – I previously posted a more substantive response to Milt but it’s been stuck in moderation for hours.

  47. Chris Warren
    January 18th, 2013 at 17:10 | #47


    I don’t think anyone at the receiving end of capitalist colonialism would agree with your balance sheet that somehow capitalist faults are less than socialist faults. This is just ideology and is not the point. It is amazing how people try to divert attention this way. The point is to achieve a stable economy which, as demonstrated in another thread, necessarily excludes capitalist profit.

    It does not matter how you define capital, it is how it is used in society that matters. Those with a more rigorous mindset would define capital as a social relation. Alternatively, it has been pretty well known that capital is only money invested so more is accumulated as a continuous process. A typical capitalist will not invest on any other basis. A public enterprise will.

    Most people with a passing competancy in these issues will be familar with the Marxist formula:

    M – C – M’

    Those camouflaging capitalist profits would try to merge capitalist capital in with all manner of normal assets, investment, machinery, and finance. They then try to claim that others are:

    totally confused as to what Capital actually is.

    If you want to use a generic, vanilla, concept of capital, then there is no point focussing on capital in particular and you might as well just use “investment” or “finance”. But then the argument is no wit advanced, because the same issues arise with capitalist investment and capitalist finance as with capitalist capital. You need to recognise a difference because investment, wealth and finance exists under feudalism, capitalism and socialism and the political economy is different within each.

    Maybe you have some idea of a difference between capital and investment and finance. Maybe not – it seems you have combined the two without recognising that a stable economy can have finance, and investment, but not as under capitalism, ie not as formal Capital.

    If JK Rowling uses her income for luxurious consumption then there is no direct capitalism. She is receiving a very high wage. However she has sold commodities (ie books) at well above their value due to her monopoly in her field and a legal structure – copyright – designed to maintain this monopoly. If every capitalist did this, economic collapse would be instantaneous.

    JK Rowling does not represent typical capitalism.

    Within a non-capitalist economy, it would be entirely possible that copyright would be means tested on a scale agreeable to the community or other mechanisms developed to ensure such blatant inequities as represented by Bill Gates and JK Rowling do not arise.

  48. BilB
    January 18th, 2013 at 18:06 | #48

    Alright, Chris Warren, so in your non capitalist economy someone who sells to many of an item would have their success curtailed by one means or another, is that correct? Who decides how much is too much?

  49. Chris Warren
    January 18th, 2013 at 18:14 | #49


    Not correct

    The amount of final consumption decides if too much (at a price) is produced.

  50. BilB
    January 18th, 2013 at 18:31 | #50

    Are you saying that each publication has a limited paper allocation?

  51. Ikonoclast
    January 19th, 2013 at 06:50 | #51

    Too many people these days conflate capitalism and democracy. I use “conflate” here to mean “merge together and then incorrectly consider them to be the same thing”. In fact many people now believe erroneously that capitalism generates democracy and generated it historically. This view is completely false, completely refuted by studying history and also refuted today by analysing social relations under capital. Those who have clearly read no history of (even) the 18th, 19th and 20th centuries need to do so.

    Let us get on to the second point (analysing social relations under capital). The confusion of capitalism with democracy typically occurs with those who see only the market and only the consumption side of the market. There they see (by conflation) a “democracy” where people “vote” with their money. Free choice is deemed to occur and what is produced is assumed to match the “democratic” demand for goods. This process is assumed to be beneficial for personal freedoms and overall economic efficiency.

    What this view fails to see, while concentrating on the social relations of consumption, are the social relations of production. The consumer who appears so “free” when purchasing the (generally gimcrack and tacky) array of consumer goods must be visited as the worker in the factory, the office, the mine, the gravel pit, the trucking company and the toilets of the trucking company (meaning the cleaner of those toilets)*. Further, as Chris Warren points out, the worker must also be visited in the third world factories of Nike (Indonesia) and Apple (China) and the small to medium businesses where child labour is still very common (Indian sub-continent).

    It is in these places that we see the erstwhile “free” consumer now in compulsory drudgery. The drudgery is compulsory because, depending on country, unemployment is usually high (anything over 2% frictional unemployment is high), welfare benefits are non-existent to inadequate and the worker has no real alternative. It is drudge for the rich man or starve or at the least lead a very narrow and straightened existence.

    I know what I am talking about. I worked in a James Hardie fibro factory. I don’t have mesothelioma… yet. I worked in both bank offices and public service offices as a low paid clerk. I worked in gravel pits, on farms and and as a casual builder’s labourer. I worked as a cleaner in a trucking company. You have not seen filth until you have cleaned a trucking company’s toilets. In several of these jobs in my early work life (I mean the 1970s and early 1980s) I was paid under award wages and worked under illegal, unsafe conditions.

    The point is that under capitalism those were my work relations (and Australia was perhaps relatively enlightened at that time compared to many countries) and work is a big part of one’s life. There is no freedom in all that. If I had been free to choose and not under the compulsion of being without capital and forced to work for the man with capital would I have chosen that for myself?

    The only reason that proper implementation of award wages, safety standards and so on made any progress was due to unionism (worker solidarity) and social democracy. It had absolutely nothing to do with capitalism. The capitalists resisted every advance in wages, conditions and autonomy for the workers and still do. In fact, with neoliberalism they have been winding progress back since about 1985.

    It is not capitalism’s efficiency at allocation and production that has created the concentrations of wealth you see today. It is capitalism’s efficiency at exploitation that has lead to these concentrations. Any good that exists in social relations under capitalism has come from the forces of worker organisation and social democracy which wrested some concessions from predatory capital. Science (pure and applied) is the prime initiator of technological progress not capitalism. And most of the teaching of science and science R&D was paid for by governments i.e. it was socialised progress.

  52. kevin1
    January 19th, 2013 at 07:31 | #52

    @Ikonoclast #39
    The lack of an credible economic “model” to capitalism can’t be underestimated as a paralysing factor. Isn’t it like a club where the leaders are known as duds but no-one else will stand for election? So we have to make the most of the cards we are dealt. Albert Hirschman’s idea of voice and exit suggests that not having a way out forces the group to reform and improve from within. Without a change in the balance of power, towards radical democracy (including diminution of institutional power and deliberative decisionmaking) then these changes might be made. Radical democracy as an ideal has a fighting chance, socialism none at all.

    I used to think the JK Galbraith comment about markets being a good servant but a bad master was a nice approach, but it doesn’t take us very far. It really only rules out the outlier models to a mixed economy, which is what we’ve got everywhere anyway.

  53. Chris Warren
    January 19th, 2013 at 08:07 | #53


    I tend to agree. Capitalism may appear to have kicked-off today’s form of ‘democracy’ but under the tawdry banner of Liberalism. This was a project to gain freedom from old English forms of pre-capitalist political economy constrained with Royal Charters and Livery Companies such as the Worshipful Company of Cutlers etc. Fortunately capitalism was not allowed to create the regime of freedom it desired, and there were many battles involving various interests to produce the historical compromise we now live under. If you want a look at capitalist ‘democracy’ (!?) – have a look at any of the banal websites under “Objectivism”.

    Capitalists are still trying to destroy this historical compromise – Campbell Newman in Queensland, Nick Minchin supporting current High Court challenge, and Bronwyn Bishop’s campaign to eliminate preferences.

    Gina Rinehart knows what sort of democracy she wants – the Berlusconi version where capitalist media jingoism drives voters into a frenzy – and she appears to be taking steady steps to grab control of Australia’s media.

    It was interesting to see what happened when representative democracy conflicted with capitalism in the City of Sydney Council. Democracy was abolished and they established a set of Commissioners – a true Junta under Eric Neal and Nicholas Shehadie.

  54. BilB
    January 19th, 2013 at 09:53 | #54

    Ike @2/1,

    You kick off a good point, but draw the wrong conclusion. Democracy is observed to automatically come about in a population with 80% literacy, freedom of speech, and 20 years duration. I believe that there are several other important riders the most important one of which is individual land ownership. But how “systems” originate and maintain themselves is worthy of study.

    Some noteable examples.

    The Catholic Church maintains itself and expands with indoctrination from birth. One is born into the Catholic Church and the church works aggressively to maintain control of its members throughout life. This is why the Vatican will never allow birth control as it is through birth that it acquires new mwmbers and large families are its method of expansion.

    The Church of England utilised national identity as its method of recruitment and empirical expansion as its method of expansion.

    Islam utilises bribery of the impoverished for recruitment then religious domination of politics as its means and expansion and threat of death for its method of retention.

    Marxism saw its opportunity window as being economic collapse due to crushing exploitation initiating the spontaneous acceptance of a philosophy of common ownership and and all performing for the common good. Did it ever really work anywhere?. I think that one of its requirements is a weak or nonexistent regime of personal property ownership to ever have the chance of taking hold. It is a huge leap for people to give up their right to own property and take on the essential philosphy of common sharing.

    Socialism, total socialism where it exists, is largely tribal with indoctrination at birth. Very common in primitive communities. Socialism is not in conflict with democracy but has limited scope for maximum human performance.

    Capitalism is a natural consequence of individual property ownership, but does not require an overarching philosophy. It does however require a parcel of enablers for stability. Private property, uniform education, a regulating body of some form, and free communication. Capitalism does not require democracy, but its enablers induce democracy automatically.

    Hybrides. I think it is obvious that a blend of capitalism, socialism and democracy is the most successful and efficient arrangement for the management of human affairs, but its success is dependent on the constrainment of extreme influences of all forms. And one of the many of those extremes is, as Ike you suggest, is media domination for the purposes of self interested coersion. Fortunately effectiveness of this vehicle for perverting democracy is rapidly waining under the power of individual communication with direct information sharing anabled by the internet.

    I might suggest a new form of human interconnection that might arise in the coming century and that is Environmental Socialism. New but also ancient, as only our Aborigines will appreciate.

  55. BilB
    January 19th, 2013 at 10:00 | #55

    Afterthought. Socialism also has a nomadic vector of origin.

  56. Ikonoclast
    January 19th, 2013 at 10:11 | #56

    @Chris Warren

    Yes, we can see where Gina Rinehart (a typical capitalist) is coming from.

    “World’s richest woman calls for Australians to take a pay cut – ‘because African workers are willing to earn just $2 a day’ – Mail Online, 5 Sept 2012.

    In Gina’s view all workers should be willing to work for $2 a day. This is the clear meaning of her message. So while she should be able to amass billions via exploiting national assets and workers, the workers themselves should live on $2 a day.

    She makes her statement at a time when the worker’s shared of national income is getting lower and lower every year and the profit share of national income is getting higher and higher. Clearly no amount of wealth (even a currently obscene amount of wealth in Gina Rinehart’s case) is ever enough for capitalists. They always demand, oppress and expolit more and more and more. They will not stop until all the workers of the world are reduced to $2 a day. They will not stop unless the workers themselves stop them. There is no other politcal economy force to stop them. That is plain fact.

  57. BilB
    January 19th, 2013 at 10:14 | #57

    Something that I was thinking about the other day is that whereas Russian style communism could operate at a high level, particularly in the sciences, it always looked to the capitalist west for guidence on what could be achieved. Marxism, communism, and socialism all suffer through limiting the full extention of human creativity.

    “what do you give up for the common good”

  58. BilB
    January 19th, 2013 at 10:21 | #58

    Ikonoclast @6,

    …….whereas in communism and Chris Warren’s economic socialism we should all work for a small flat in a huge state owned building complex and the food we eat. I don’t see much of a difference between that and Commissar Reihardt’s vision.

  59. Chris Warren
    January 19th, 2013 at 10:43 | #59


    I suggest people just ignore this.

  60. Jim Rose
    January 19th, 2013 at 11:00 | #60

    John, Breaking up banks seems to me to have many risks and is poor problem definition

    The fragmented American system is unstable. Bank failures are common even in good times because, until recently, no inter-state branch banking was allowed and there were even strict limits on intra-state branch banking. some states limited banks to one branch.

    Canada, and I think Australia, had not bank failures in the 1930s because their banks were few in number and they had nation-wide branch banking to diversify risk.

    The Kareken and Wallace moral hazard theory of bank panic prediction is that if a government sets up even implicit deposit insurance and lender of last resort and does not regulate bank portfolios to prevent them from taking too much risk, the government is setting the stage for a financial crisis.

    Peltzman found in the 1960s that bank capital ratios halved after deposit insurance was introduced in the USA in 1934.

  61. BilB
    January 19th, 2013 at 11:33 | #61

    Jim Rose,

    I think JQ was predominately refering the conflict in objectives between retail banking and investment banking.

    “a man in command of a fortune must be in need of a wife” from Austins time translates to

    “an institution in command of a fabulous accumulation of liquid assests must be in need of a Harvard graduate”

    This is where Akerman’s socialised capital falls in a screeming heap. Headline, “Noble objective falls foul of corrupt officials”. The GFC equivalent is where the merchant banking sector said to the retail sector “Oh, you’ve got some problematic investments? give them to us and we will see if we can dispose of them for you”.

    It is a property of human nature that accumulations of wealth are a magnet for creative thinkers. That is never a good thing for the owners of that wealth.

  62. may
    January 19th, 2013 at 13:16 | #62

    chatting to and ex small country town businessman recently

    the story went-

    farmers left caravans in caravan park year round for a small annual fee.
    weekends the family hung out and did some fishing.
    the park was populated and had a respectable cash flow so it was well maintained.
    the park had an excellent name on the round OZ and interstate grapevine.
    town businesses ticked over nicely.
    the caravan park was sold.
    instead of an owner there was a manager.

    some one somewhere (it must have looked so goood on the spreadsheet)decided to free up sites for more visitor traffic by cleaning out the farmers vans,upping the annual fee to the point the farmers buggered off.

    the steady cash flow employing workers for maintainance evaporated.
    the park deteriorated,the manager could not do everything that needed to be done.
    the word went out on the travellers circuit and traffic became a slow trickle.
    the town businesses no longer had the steady custom.
    the person who told me this went from employing 12 people in the busy times to only 2.
    the business closed.
    the people of the town now must travel to the nearest central town or have sent in,the product they once had just up the street.
    and the caravan park is a mess.

  63. may
    January 19th, 2013 at 13:25 | #63

    the caravan park is open(sort of)
    the person i was chatting to, closed.

  64. kevin1
    January 19th, 2013 at 13:44 | #64

    What are your conclusions about this, May?

  65. BilB
    January 19th, 2013 at 15:24 | #65

    May’s story highlights the folly of business. It also talks to the subject of perceived value. This is very much a case where on knowing that the caravan park was for sale, the benefitting businesses should have pooled their funds and bought the park. But they didn’t I would suggest because they were not organised on the one hand and had a common opinion undervaluing the park on the other. Also the park’s new buyer could well have paid way too much, another common story and one being played out in Rio Tinto right now.

    There are many situations where a common ownership, or in the capitalist ethos shared ownership, is very much to local advantage. All of those collapsed businesses may very well not realise just how much the original owner of the caravan park gave up for their common good. Arrogance, greed, competitive intolerance, are all human traits, and certainly all present and active in economies of all forms.

  66. Chris Warren
    January 19th, 2013 at 16:15 | #66



    If capitalists expect to make more profits selling fewer items but at higher prices or by cutting costs – this is what they will do – even if they wreck their own enterprise in the long-run.

    The capo-motive appears to have run amok in this case.

  67. BilB
    January 19th, 2013 at 17:00 | #67

    There you go, Chris. You are trapped in a one dimensional understanding eneterprise. There are many, many ways of calculating ones advantage, and many kinds of rewards. Watching an article here on Thatcherism the comment was made by one novelist that Economic under Thatcher elevated money and wealth form being a means to an end, to that of being an end in itself. That is possibly the best way of understanding this, and the GFC for that matter.

    In May’s example I suspect that there is a huge degree of context. Depending on the timing I suspect that the owner, wearied by the years of drought and hard times took the wet spell and La Nina’s regreening as an opportunity to either retire of find a new start elsewhere.

    Capo-motive? I think more ego than money. Examining business failure is a hobby of mine, particularly those where a business person who has done well in an earlier enterprise attempts, after cashing up and some years later, to recreate their earlier successes. I find these failures particularly fascinating. One of the fundamental understandings of business is that greed breeds competition, that is the fallacy of your overiding money motive. Not everone remembers the rules.

  68. Chris Warren
    January 19th, 2013 at 18:10 | #68


    You miss the point – the damage to the enterprise was not linked to drought, wet spells or La Nina’s. It was linked to cutting services and maintenance, and instead of owner making a wage, a manager was inserted who had to make their wage plus give a return to whatever funds were used to buy the park.

    So the original enterprise was sustainable and supported jobs and a community but as soon as a more rapacious capitalist gets into the game – collapse eventuates.

    And then the capitalists blame everything else they can possibly dream up:

    the drought
    the wet weather

    The previous owner is probably laughing his head off.

  69. BilB
    January 19th, 2013 at 18:23 | #69

    As May said “it must have looked good on a spreadsheet somewhere,
    ” and I said “the folly of business”.

  70. Jordan
    January 19th, 2013 at 18:58 | #70

    The most probable reason for collapse of an enterprise today is buying it on debt which adds interest cost on income fllow. Without antagonistic approach to capitalist or to employees you will come to this conclusion.
    Retail sector debt is dependent on refinancing and credit is set up as ballon payment. Enterprise’s cash fllow is suficient for interest cost payments only with principal requierd at the end of the term. If refinancing hits in period of crisis when cash flow is low or negative there is no option for refinancing whole principal and enterprises default and close. At the bottom of the crisis enterprenuers with cash buy properties at discount and open the business with positive cash flow.
    This is called Business Cycle.

    Acces to credits allow for increased price of properties, which is another factor in business collapse. Credits allow for higher demand when buying. Steve Keen has excellent presentations on how debt is a cause for economic growth, housing prices. Debt growth is hence, a cause of capitalist succes and collapse.

  71. Chris Warren
    January 19th, 2013 at 19:09 | #71


    Yea if debt gets into the game – the picture is worse.

    Now you have to extract value to pay the manager, the investor plus the lender.

    However if interest paid is tax deductible, the urge to borrow may be exaggerated.

  72. Jordan
    January 19th, 2013 at 19:52 | #72

    I would want to point to Soviet example of socialism as state capitalism. In Soviet block, ownership of production was in workers hands, but distribution was in state hands. Just as in capitalism workers did not have a say in distribution of income/ profits. Soviet block practiced more coercive form of state capitalism then present China and did not concentrate on stealing developement in inovation as China. With passing time, Soviet block also stoped using money printing as enabling new production and developement but to secure enrichement of Army and state buearocracy while organizing further developement stagnated.
    As you can read, China is switching to in state consumption as economic motivator since external AG is collapsing.

    Closest to fully socialist system was in Yugoslavia from 1948-1980. I am wondering why JQ skipped this example in The Light on The Hill? was it for lack of centralized archives of socialist developement, or Serbia still baning acces to it, or because it will really endanger capitalist dogma?

    From slavery to capitalism one thing did not change; who decides on distribution of production income. Only thing changing is how much is distributed where and by what phylosophy. In developement of distribution process, workers have more and more to say so systems changed.
    In state capitalism workers also have litle to say on how to distribute products of production.

    In Titoizm/ self-directed enterprises/ co-operatives/ collective association/ Barcelona Commune workers decide on distribution helped by expert input. Tito and Kardelj really tried to implement Barcelona Commune system that he experienced during Spanish Civil War and which Stallin destroyed, but was pressured by Stallin and later on with domestic stallinists to implement state capitalism. After killing and sending to jail many stallinists he still did not succed in erasing stallinist idea from population.

    Reforms of 1965 which aimed at giving more distribution power to individual enterprises did not work. Middle level state barocracy did not allow it. Those that had distribution power did not allow reduction in their power. They enjoyed higher benefits due to that system of distribution.

    The real reason that “socialist” system failed is in invention developement that is in state hands, in socialism and in capitalism and what JQ pointed in his reply to Ackerman. State organizes incentives for invention and developements and “socialist” block had huge failings about that. Today’s China is thinking about that and it is openly stealing inventions from developed world.
    While most of the developements came from military and space exploration in capitalist world, those inventions were readilly accesed by private interests and exploited almost for free for purpose of profit.
    That was a huge surprise for me when i moved to USA. In Yugoslavia, millitary developements were highly guarded secrets and were almost never alloved to be used in private sector. Other matter that significantly contributed to that separation of developement was lifetime job. In socialism, once you find a job, it is your job for life. In USA, millitary personel that developed new inventions would easilly switch to private sector employment bringing with them the new technologies. Besides that state was intentionally offering public sector technologies to private sector just after few years of achieving it.
    That was forbiden in socialist states supported by ideology of defense from capitalist world as primary goal. Paranoia that had grounds in real world was preventing state developement of technology to be used for private purposes, no matter how old that technology and how unimportant that was comparing it to capitalists military technology.

    There were plans to achieve new technological developements by sending workers to West and then get them to implement them in Yugoslavia, but political turbulations changed that into ad-hoc adjustments and forgeting the purposes of doing that, making emigrants sort of public enemy due to double thinking in intelligence agencies. China is not making such misstakes, their emigrants come back and implement new technologies with success.

    Yugoslavia is only good example of socializm because also it enjoyed free trade with both blocks, which Cuba did not have. Only Yugoslavia had acces to the trade as most of the countries have in their environment when analyzing economic impact and comparing the systems.

    Why is the technological developement important for a system succes is clear almost to everyone, but in a printing currency environment it is important to prevent large trade defficits which will disloge benefits of money printing and cause damaging high inflation. Instead of developing its own economy, money printer will benfit foreign economy by large trade deficit instead of its own.

  73. BilB
    January 19th, 2013 at 19:53 | #73

    I know what you are saying, Jordan, but I disagree.

    Finance charges are just a cost, and not necessarily a particularly high one. Consider the option to borrowing the money, accruing it over time. This process involves significant losses as the money devalues during the accrual process (+interest -tax on interest -inflation -loss of opportunity), and tax is paid on the accrual funds. Then when you buy the business you get to depreciate the purchase funds but over a longish period. In the alternative the business startup is immediate, the interest on the loan is tax deductible and tax is paid on the principle repayments as the business earns.

    Businesses fail when they under perform. Interest payments become mor significant as income drops, but it is rarely the cause of the failure. A properly run business will self liquidate with a positive outcome when business becomes difficult and unpredictable. That is the correct and complete business cycle. Not all businesses “collapse”. You tend to not remember the ones that shut down in a controlled manner.

    Can I top up your glass now?

  74. Jordan
    January 19th, 2013 at 20:01 | #74

    I was not talking about interest cost as a cause of business cycle, but a need to refinance full principal in times of crisis as a cause. Interest cost is just another cause of badly run businesses in normal times, or businesses that lost their market share not due to their own making but due to environment change.

    The problem is retail credit conditions. Business credit is mostly ballon payment credit, it is not as private credit where your monthly payments include principal and interest cost. Private credits are fully amortized trough credit term, while business credits are not amortized. It makes it almost impossible to refinance it in time of economic crisis.

  75. sdfc
    January 19th, 2013 at 20:23 | #75

    Debt growth is hence, a cause of capitalist succes and collapse.

    That’s a good line.


    When income falls, the burden of carrying pre-existing debt rises. This becomes a particular problem when debt levels are high and rising levels of bad loans put pressure on bank balance sheets.

    Even if firms are shut down efficiently unless a buyer can be found, the owners continue to carry the debt only now they have to find the income to service the debt. There are not likely to be many buyers or banks willing to finance buyers in a crisis.

  76. BilB
    January 19th, 2013 at 20:25 | #76

    Some good information on the Yugoslavian experience there, Jordan.

    I worked with a Yugoslav guy in a furniture factory in the seventies. When the “oh what a night” song come up on radio he would stop and go dreamy eyed and softly nodding say “what a woman, …….what a night”. And you imagine this long remembered wonderful experience just from his body language.

    On the other, well if a business is allowed to go heavily negative then it will be a mess. That is life. In manufacturing we have to constantly be aware of our degree of agility when trading conditions become difficult. If you do not have the ability to rejuvenate in a more favourable direction then you should self liquidate.

    My mother always said “never put all of your eggs in the one basket” and she was right.

  77. January 19th, 2013 at 20:29 | #77

    John: The BZE stationary energy plan ( provides one credible plan for converting all electricity produced in Aus to 100% clean power over the next 10 years without having to use nuclear without destroying the economy. This plan is based on technologies that are commercially available right now.
    There is also a technology available right now that can produce what I call “electro fuels” These are fuels that are produced using clean electricity and clean raw materials. ( For example,
    1. Clean hydrogen can be produced using electrolysis powered by clean electricity. (4% of the worlds hydrogen is produced this way.)
    2. Clean hydrogen can be combined with clean nitrogen extracted from air to produce clean ammonia.
    3. Clean hydrogen can be combined with clean carbon dioxide extracted from the air and converted to methanol.
    4. Methanol can be converted to gasoline by removing the oxygen in methanol.
    Liquid ammonia, methanol and gasoline can all be used as transport fuels with, at most only minor engine modifications.
    Dirty hydrogen, ammonia and methanol produced from fossil fuels are currently used to produce a wide range of chemicals. The list could be expanded if fossil fuels were no longer acceptable.
    Unlike bio-fuels, unlimited quantities of electro fuels could be produced without reducing food production or damaging the environment.
    In terms of transport, clean electro fuels can be used for applications where the direct use of electricity (and batteries) is not practical. (Think long distance air and sea transport.)
    In terms of chemical production, clean electro fuels would be an essential part of any credible plan to clean up major chemical industries such as the petrochemical and fertilizer industries. Clean hydrogen could also be used to do things like clean up the production of steel.
    You need to be more optimistic re what could be achieved by currently available technologies.

  78. sdfc
    January 19th, 2013 at 20:31 | #78

    Business people generally do put all their eggs in one basket. They are the risk takers, where would we be without them.

    You forget most businesses are small.

  79. BilB
    January 19th, 2013 at 20:36 | #79


    Self liquidating a business involves selling off the assets in a controlled manner at realistic (not fire sale) values. This is a calculation business always has at hand, usually from the positive aspect of growth, but also in the negative situation of contraction. There is no residual debt.

  80. Jordan
    January 19th, 2013 at 20:38 | #80

    I am aware of benefits of inflation to eat up the cost of borrowing, but are you aware of impact of low inflation and deflation on the ability to eat up the cost of borrowing.

    Last 40 years interest rates and inflation were falling. Lower inflation keeps the cost of borrowing leveled while benefits of inflation eating up debt is lowered. It is represented in Real interest rates. Even tough Real Interest Rate is dificult to calculate but it represents difference in benefits of inflation as destruction of debt to cost of debt.

    Even tough, interest rates fall as inflation falls but also RIR rises due to lag in interest rate fall. Interest rates are calculated with predictions of inflation in the future. Deflation raises RIR to such levels that borrowing becomes too expensive. In deflation, while nominal debt is fixed, nominal prices and incomes are lowered making it impossible to pay off the debt.

  81. Jordan
    January 19th, 2013 at 20:45 | #81

    I stole that conclusion from Steve Keen. It is all his and confirmed with my experience as enterprenur.

    Sorry to rewrite your point of deflation in my last post, but you posted it while i was writing about. Your writing is more expressive then mine.

  82. sdfc
    January 19th, 2013 at 20:45 | #82

    BilB you’ve got to find a buyer for those assets in a falling market. The value of a business generally goes beyond its tangible assets. Not all businesses that fail in a downturn deserve to, falling sales can test the best run business.

  83. sdfc
    January 19th, 2013 at 20:46 | #83

    What point was that Jordan?

  84. BilB
    January 19th, 2013 at 20:54 | #84


    You’re focussing on failure scenarios. Unemployment is under 5%. Business is doing OK. Our economy is doing fine.

  85. sdfc
    January 19th, 2013 at 21:09 | #85

    That’s why the RBA has been cutting rates for the past year or so, because the economy is going gangbusters.

    Employment growth has been crap for a couple of years now.

  86. Jordan
    January 19th, 2013 at 21:09 | #86

    Yes there are multitudes of benefits and costs to borrowing, and they probably cancel each other in total, but what is important is that borrowing in total makes it dependent on future borrowing in total. If borrowing increases costs of business, it also increases buying power, so net benefit or cost is 0, but if times come when one side or both are not able to borrow more, then both collapse and GDP falls.
    Economy is dependent on debt growth, constant debt growth.

    Another way to look at it is, if capitalist earns more profits and keeps it saved, that money is dead. in order to compensate for saved dead money consumers have to borrow to keep the flow going.

    By allowing capitalists to save more and put it in bank, there is more ability to borrow by consumers by reducing interest rate by increased supply of capital. This increased borrowing enable consumers to buy more and support Nominal Surplus Circulation other way besides income. Capitalist savings increase even more while due to stagnation in income, consumers borrow more till the line of max indebtness.
    Debt increase have to be followed by income increase that can service thet debt. YOu can also increase borrowing by lowering interest rates but only down to 0, not bellow it. Liquidity trap/ Zero lower bound/ savings supply glut whatever you want to call it.

    But capitalist also invest savings into financial assets that does not increase income of consumers, but increases their savings which lowers interest rates even further enabling more borrowing. But it can lower IR only down to 0, not further.

  87. sdfc
    January 19th, 2013 at 21:11 | #87

    A zero cash rate is a prime example of policy failure.

  88. sdfc
    January 19th, 2013 at 21:11 | #88

    Or near zero before someone jumps on me.

  89. Jordan
    January 19th, 2013 at 21:29 | #89

    I am mostly talking about conditions in USA and interstate EU. Australia has kept mean income growth comparing to USA and EU interstate comparison. Weather proces of of Nominal SUrplus CIrculation is within individual producers and individual consumers is at matter, same monetary laws are applied to individual states within monetary union that does not have money printing ability. Same laws apply with currency users / no printing ability.

    Export led deficit prevention in Australia is only nominal/accounting problem for USA, Japan, UK so they all have the same interest rates due to CB controling it. In monetary sovereignty CB is controling interest rates. So export in Australia is not a cause for good employment, but increasing mean income of consumers.

    Larger deficits enable larger savings trough additional income in interest rates, so with it enables interest rates to reach 0% faster then with smaller deficits.

    What is important is to keep Nominal Surplus Circulation flowing, whether trough debt increase or income increase. Australia still has some room for debt increase due to income increase.
    In USA debt increase stoped after a fear of defaults first in banking sector and then in personal sector was awakened. Obama administration is calling this a investor (bank) confidence which prevents further debt increase. There is no acctual limmits to debt increase, only psychological and accounting numbers. Otherwise, withouth this psychological fears, debt increase could grow as long as there are numbers awailable for accounting spreadsheets. Forewer.

    This is the crux of MMT.

  90. rog
    January 19th, 2013 at 21:59 | #90

    @sdfc Those good at business are risk adverse, that’s why they are good at business. Understanding and then avoiding the risks is the key.

  91. sdfc
    January 19th, 2013 at 22:31 | #91

    Being in business is about the least risk averse investment you can make.

  92. Jordan
    January 19th, 2013 at 22:42 | #92

    Being in business means that your liability toward debt is reduced, so you are right in that way. You can make your own income by increasing debt onto corporation for quite a few years.
    In USA about 20% corporations pass 2 year mark.

    But rog is right on what is a key to good business; Understanding and then avoiding the risks. Avoiding the risks can take many and many of shapes, including accesing good credit line.

  93. Jim Rose
    January 19th, 2013 at 22:58 | #93

    @sdfc 20-40% of new small businesses fail in their first two years.

  94. rog
    January 20th, 2013 at 05:11 | #94

    @sdfc Adverse/averse.

  95. sdfc
    January 20th, 2013 at 21:32 | #95


    The debts of a failed company are every bit a bad debt to a creditor as the liability of a sole trader or partnership.

    Business owners make decisions based on imperfect information. Some risks are almost impossible to avoid by even good business owners.


    Exactly, setting up a business is a risky undertaking.


    Don’t worry I wont hold the d against you.

  96. Jordan
    January 20th, 2013 at 23:27 | #96


    The debts of a failed company are every bit a bad debt to a creditor as the liability of a sole trader or partnership.

    On sole traders and partnerships is true, and thats why i said corporations which have limited liability on owners for debts and mistakes.

    On bad debt to a creditor is even a positive thing if creditor is a bank and most of the time it is a bank that is creditor. It is positive, since it prevents destruction of money by repyment of debt. Banks make credits out of thin air and destroy it when debt is paid off.

    In a bad debt situation, banks loose only in projected income and in allready paid commisions to bank officer. Bank officers receive bonuses from projected income, no matter how credit that income is based on ends up, with debt default or not. Credit balance did not come from someone’s savings, but it is brand new money.

    This is what a lot of bank regulators and bank officers claim, only economists perpetuate the myth that credits come from savings.

  97. Jordan
    January 20th, 2013 at 23:46 | #97

    I have to fix my last post, because there is no mentioning of the cause of financial collapse in 2008.

    Another problem for banks that came up with debt defaults to banks is that they also sold this projected income to other investors, not the whole mortgage with principal but only projected income from interest rates paid on principal. And investors who bought that projected income used money that came from someone’s savings and other banks. There was additional commision paid out for such sale.

    Then investors also sold that projected income again and paid out a commision. Then a new buyer bought insurance (CDS) from AIG to protect the projected income. No doubt that every transaction also involved buying insurance for themselves even tough they sold the liability that insurance covered later on. So you end up with multiple insurances on the same liability. And every transaction piled up additional bonuses paid out. I believe there were so many bonuses paid out every step that exceded projected income on a particular credit.

    Once a particular debt defaulted AIG had to pay out multiple times for a single lost projected income.

    If banks did not sell mortgages that they originated there would be no such a mess, only issues described in my fomer post.

  98. sdfc
    January 21st, 2013 at 15:42 | #98


    We’re not talking about the ramifications of one bad debt on the banking system (though how even one can be called a positive is beyond me), but cascading defaults as a result of a general crisis.

    The issue of bank created, debt backed money is what makes such a situation so dangerous. In the interests of simplicity let’s leave aside the issue of the creation of higher orders of money. When the banking system extends a loan, it creates a deposit, increasing the money supply. Therefore it is only logical that a general deleveraging, be that through a retirement of debt or bankruptcy, will see a decline in the money supply.

    A monetary deflation such as this is necessarily accompanied by an income deflation which when the economy is carrying a high level of debt is sure to push the economy further away from full employment rather than being the ultimately stabilising process crude economic theory assumes.

  99. Jordan
    January 21st, 2013 at 17:33 | #99

    General deleveraging can be by paying off the debt or default. Paying off the debt shrinks the money supply while default does not, so it is positive.
    If banks create money then stoping the repayment of debt stops destruction of that creation, hence positive. Just as inflation is positive in terms of buying power.

  100. sdfc
    January 21st, 2013 at 19:04 | #100


    While a loan default will not in isolation cause the money supply to fall outside of the liquidation of the tangible assets of the defaulter, it does have a detrimental effect on bank balance sheets.

    These days we no longer have the threat of large scale deposit liquidation, however the impairment of bank balance sheets has wider ramifications for private sector borrowers and the money supply as a whole as banks withdraw credit. Business and household credit outstanding in the US fell consistently through the recession, that M1 itself did not fall is likely the result of the huge rise in public sector borrowing.

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